We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is Loan Protection Insurance?

Tricia Christensen
By
Updated: May 17, 2024
Views: 1,958
Share

Loan protection insurance usually does not refer to loans taken out for home mortgages. Instead it is an insurance policy that might begin when a person takes a personal loan, buys a car with a loan, or begins a credit card account. When these insurance policies work as expected, they provide some protection toward making loan payments (usually for no more than a year) should certain circumstances occur, like loss of job or prolonged illness. In the case of death, loan protection insurance may, depending on terms, pay the loan in full.

There are lots of countries that have this type of insurance, and in most cases, people can decline having it if they chose. Sometimes on bad credit loans, people might be required to take out some form of loan protection insurance and they’re liable to have to pay quite a bit more for it, since bad credit makes the insurance industry see these folks as less likely to repay financial obligations.

Many insurers have either standard or age related policies. Age related policies cost more as people advance in age, but less for younger people. Age related loan protection insurance might be a cheaper option for younger people, but older people may want to choose standard options instead.

The degree to which loan protection insurance is valuable depends on its coverage and exclusions. Exclusions need to be evaluated carefully. Plans might have exclusions on massive illness resulting from pre-existing conditions, on unemployment or financially grave circumstances for those who were previously self-employed, and many more. Though usually difficult to do, people should fully read the terms and conditions of any policy they are considering purchasing.

While loan protection insurance can be valuable, they do add extra cost to a loan. This amount varies and could be factored in several different ways. It’s usually a percentage of the loan, but the specific percent can be based on issues like age, credit report and company offering the insurance.

There’s also a little trick that some lenders employ to get people to purchase loan protection insurance. This is when a lender offers a lower interest rate in exchange for people buying this protection. For many borrowers the cost of purchasing the insurance may end up making no different between higher loan interest amounts and lower ones. It’s worthwhile noting this because it may not always be a good deal.

In the end, people have to decide if they require this insurance. Some people are thrilled with the extra protection, especially in a shaky economy. Others are more interested in saving the money that loan protection insurance would cost.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Tricia Christensen
By Tricia Christensen
With a Literature degree from Sonoma State University and years of experience as a WiseGeek contributor, Tricia Christensen is based in Northern California and brings a wealth of knowledge and passion to her writing. Her wide-ranging interests include reading, writing, medicine, art, film, history, politics, ethics, and religion, all of which she incorporates into her informative articles. Tricia is currently working on her first novel.

Editors' Picks

Discussion Comments
Tricia Christensen
Tricia Christensen
With a Literature degree from Sonoma State University and years of experience as a WiseGeek contributor, Tricia...
Learn more
Share
https://www.wisegeek.net/what-is-loan-protection-insurance.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.